T-cells attacking cancer cell illustration of microscopic photos

An excellent end to the year

Targovax 14 December 2020 Update
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Targovax

An excellent end to the year

Company update

Pharma & biotech

14 December 2020

Price

NOK9.3

Market cap

NOK804m

Net cash (NOKm) at end-Q320 plus private placement in October

152.7

Shares in issue

86.5m

Free float

90%

Code

TRVX

Primary exchange

Oslo Stock Exchange

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

37.4

37.2

42.2

Rel (local)

31.1

26.3

45.4

52-week high/low

NOK10.2

NOK3.7

Business description

Targovax is an immunoncology company headquartered in Oslo, Norway, developing an oncolytic virus platform, ONCOS. ONCOS-102 is prioritised in several indications including mesothelioma and melanoma. Targovax is also working on next-generation oncolytic viruses in its preclinical R&D pipeline.

Next events

Immunological data analysis

H121

Patient survival update from Phase I/II study

H220

Q420 results

18 February 2020

Analyst

Jonas Peciulis

+44 (0)20 3077 5728

Targovax is a research client of Edison Investment Research Limited

In the space of a week, Targovax has reported the results from both its lead trials with ONCOS-102, an oncolytic virus. Data from the Phase I trial showed that 35% of anti-PD1 refractory patients with advanced, unresectable melanoma responded to ONCOS-102 plus Keytruda treatment. These data are Targovax’s most significant achievement to date and indicate ONCOS-102 was able to sensitise the refractory patients to anti-PD1 treatment again. The melanoma trial results were reported after an 18-month follow-up update from the second lead Phase I/II study with ONCOS-102 in mesothelioma. The median overall survival (mOS) has not been reached yet. In the ONCOS-102 arm, mOS will be 18.2 months or longer, while in the control arm (chemotherapy) mOS will be 14.2 months or less. Our updated valuation is NOK2.02bn or NOK23.3 per share.

Year end

Revenue (NOKm)

PBT*
(NOKm)

EPS*
(NOK)

DPS
(NOK)

P/E
(x)

Yield
(%)

12/18

0.0

(147.3)

(2.8)

0.0

N/A

N/A

12/19

2.3

(147.9)

(2.4)

0.0

N/A

N/A

12/20e

0.0

(109.5)

(1.5)

0.0

N/A

N/A

12/21e

0.0

(121.1)

(1.4)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Melanoma trial results and next steps

The trial enrolled two cohorts of patients who received different dosing regimens. The pooled data (n=20) showed that 35% of patients who relapsed after checkpoint inhibitor (CPI) treatment responded to it again after being treated with ONCOS-102. This was a hard-to-treat patient population and if these results are confirmed in a large randomised trial, in our view it would be perceived as very strong. The desirable abscopal effect was also observed and provides the first indication that after an intra-tumoral injection, ONCOS-102 was capable of inducing a systemic anti-cancer immune response. Targovax reiterated that it is planning a confirmatory trial in melanoma in combination with anti-PD1 CPI.

Mesothelioma 18-month follow-up

The Phase I/II study (n=31) trial compared ONCOS-102 plus standard of care (SoC) chemotherapy in first- and second-line unresectable pleural mesothelioma. The 18-month OS was 63% in the ONCOS-102 treated first-line patients versus 33% in the first-line control arm. mOS data are not yet mature, but in the first-line setting patients tended to survive longer in the ONCOS-102 plus SoC arm (mOS will be 18.2 months or longer, whereas in the control arm (SoC chemotherapy) it will be 14.2 months or less). For comparison, the recently FDA-approved Yervoy plus Opdivo combination for mesothelioma achieved mOS of 18.1 months.

Valuation: NOK2.02bn or NOK23.3 per share

Our updated valuation is NOK2.02bn or NOK23.3 per share versus NOK1.65bn or NOK21.6/share previously. The main reason for the increase is the revised success probability in melanoma rNPV project to 25% from 15%. Other changes include a higher cash position and rolling the model forward, which was offset by dilution after the private placement.

Melanoma: Results from Part 2 of the Phase I study

On 1 December 2020, Targovax announced the clinical results of the ONCOS-102 Phase I study with patients with advanced, unresectable melanoma, who progressed on anti-PD1 treatment. ONCOS-102 was administered in combination with the CPI pembrolizumab (Keytruda, Merck & Co). The trial aimed to show ONCOS-102 can activate the immune response in anti-PD1 refractory patients, trigger relevant T-cell production and enhance their infiltration into the tumour. The goal was to allow the patients to benefit from treatment with CPI again.

The trial enrolled two cohorts of patients, who received different dosing regimens. Patients in the first cohort (n=9) were given three intra-tumoral ONCOS-102 injections during the first week, followed by systemic treatment with pembrolizumab every third week for up to 24 weeks. In the second cohort, the patients (n=12) received an extended dosing regimen of 12 intra-tumoral ONCOS-102 injections was tested.

Results

Targovax presented data from the first cohort in June 2019, demonstrating tumour responses in three out of nine patients in at least one of the CT scans (best overall response rate, ORR ,33%). Since then, one patient has been determined as non-evaluable (not a true CPI non-responder), so the updated ORR is three out of eight patients (best ORR 38%) in this cohort. In the second cohort, the tumour response was seen in four out of 12 patients (best ORR 33%). No new safety concerns were reported. When the data were pooled, the best ORR was 35% or seven out of 20 patients (Exhibit 2).

One notable patient demographic characteristic was that the subjects in the second cohort were at a more advanced stage of cancer (average number of lesions at baseline was 4.5 in cohort 1 and 9.1 in cohort 2).

Targovax highlighted that the abscopal effect was demonstrated in multiple patients (from cohort 1 and cohort 2), whose non-injected lesions also responded. A complete remission of non-injected lesion was seen in two patients.

Exhibit 1: Patient response results from Phase I melanoma trial

Source: Targovax. Note: Response defined as tumour reduction of at least 30% in at least one CT scan, according to RECIST 1.1

Next steps

The next step is to analyse the immunological data, as only clinical findings were announced. Immunogenicity and tumour biopsy results from cohort 1 released in June and July 2019 showed ONCOS-102 was capable of inducing a cancer-specific response and that the intratumoral injection can translate into a systemic response. Targovax confirmed it is planning a confirmatory trial in melanoma in combination with anti-PD1 CPI. No other specific details have been provided yet, but presumably Targovax will be able to release more information once the analysis of the immunological data is released.

Our view

These data are the most significant achievement since Targovax listed in 2016. The rationale of the study was to prime the immune system with a virus to generate a cancer-specific response and then ‘release the brakes’ with CPI. The pooled data showed that 35% of patients who relapsed after CPI treatment responded to it again after being treated with ONCOS-102. This was a hard-to-treat patient population and if such results were confirmed in a large randomised trial, it would be perceived as very strong.

The desirable abscopal effect provides the first indication that after an intra-tumoral injection ONCOS-102 was capable to induce systemic anti-cancer immune response. The more challenging endpoints of durability and patient survival outcomes were not part of this study, but they will be in focus in the next trial.

Phase I/II mesothelioma trial: 18-month follow-up results confirm further development pathway

On 24 November 2020 Targovax reported 18-month follow up results from the Phase I/II study (n=31) in unresectable malignant pleural mesothelioma (the last update with 12-month follow-up data was released in June 2019). The randomised, open-label trial compared ONCOS-102 plus SoC (pemetrexed/cisplatin) versus SoC-only treatment in first- and second-line settings. In total, 31 patients were enrolled, with 20 assigned to the ONCOS-102 plus SoC arm and 11 to the SoC-only arm. The primary goal of the study was to evaluate the safety and tolerability of ONCOS-102, which is typical for this stage. Secondary endpoints evaluated ORR, median progression free survival, OS (available at 18 months; data will continue to mature) and tumour-specific immunological activation and T-cell tumour infiltration.

First-line patients identified as a target population

In the previous follow-ups (June and January 2020), Targovax identified first-line patients as the most rational target population. The preliminary plans for the next trial also include first-line mesothelioma patients, which is the largest pool of new patients. Because mesothelioma is not a crowded indication, Targovax will have a good chance when competing for the front-line position, if the data in the late-stage development are good.

18-month OS

The 18-month OS was 63% in the ONCOS-102-treated, first-line, randomised patients versus 33% in the first-line control arm. Median OS data are not mature yet, but in the ONCOS-102 arm mOS will be 18.2 months or longer. In the control arm (SoC chemotherapy) mOS will be 14.2 months or less.

Until recently, mesothelioma remained one of the few cancers where the SoC is still a classical chemotherapy with no new treatments approved. In October 2020, the FDA approved the combination of ipilimumab (Yervoy) and nivolumab (Opdivo) for the first-line treatment of mesothelioma, based on the data reported by Bristol Myers Squibb earlier this year from a randomised, open-label trial (n=605). The mOS in the active arm was 18.1 months and the new combination treatment has the potential to become the new SoC.

Due to the expected complementary mechanism of action between ONCOS-102 and CPIs (described in our initiation report in detail), the triple combination of ONCOS-102 plus CPI plus SoC can be expected to have an even more pronounced survival benefit. This will be the primary goal for Targovax in the next trial in this indication.

Exhibit 2: 18-month follow up results from the Phase I/II mesothelioma trial

Source: Targovax. Note: ITT: intention to treat; PP: per protocol.

Immunological data

Targovax reported the immunological data from the mesothelioma trial in June 2020. The data demonstrated that both innate and adaptive immune responses were activated, which was also associated with better clinical outcomes. Evidence that ONCOS-102 drives favourable changes in the tumour microenvironment included:

increase in intra-tumoral cytotoxic T-cells;

upregulation of adaptive immunity- and cytotoxicity-related gene expression;

macrophage phenotype polarisation from M2 to M1; and

upregulation of PD-L1 expression.

These changes were not observed to such an extent in patients who were treated with SoC only (Exhibit 3). This shows patients can be sensitised to other immunoncology therapies such as CPIs. We also note that in this trial, the patients received chemotherapy and immunotherapy (ONCOS-102). Immunosuppression (or myelosuppression) is a known side effect of chemotherapy, especially in the case of cisplatin’s. Therefore, the fact that ONCOS-102 generated a strong immune response in such a setting is encouraging.

Exhibit 3: Immune activation in mesothelioma trial corelates with clinical outcome

Source: Targovax

Next steps

Targovax has reiterated its plans to explore ONCOS-102 in combination with a CPI and standard chemotherapy in first-line treatment. These plans are still at a preliminary stage, but there is potential for the study to become a registrational programme due to a high unmet need in mesothelioma. One significant positive step towards the triple combination trial was the announcement that Merck & Co will supply Keytruda (pembrolizumab, anti-PD-1). Because of high costs, combinations with CPIs can rapidly inflate the cost of clinical trials, so a supply agreement has a direct positive financial effect for the trial sponsor.

Other programmes in the R&D pipeline

Investigator-led trial with ONCOS-102 in colorectal cancer

The Ludwig Institute for Cancer Research is a sponsor of an open-label Phase I/II trial that is exploring the combination of intraperitoneally delivered ONCOS-102 and systemically administered CPI durvalumab (anti-PD-L1, Imfinzi, AstraZeneca) in patients with colorectal cancers metastasised to the peritoneum. An abstract with dose-escalation results from this study was presented at this year’s ASCO meeting in May 2020. Although Targovax is not sponsoring the trial, this may become a new opportunity for the company. The combination treatment had an acceptable tolerability profile and no dose-limiting toxicities were observed. As a result, the high dose level was selected for the expansion phase, which is ongoing. Targovax has not confirmed its future intention in this setting, which we believe will depend on the data and any potential interest from partners. We reviewed this opportunity in detail in our report published in May 2020.

ONCOS-200: New oncolytic viruses

In second-generation ONCOS viruses, Targovax was able to add double transgenes (the first-generation ONCOS-102 has granulocyte macrophage colony stimulating factor). These new viruses have different properties and are optimised to inhibit tumour growth and vascularisation, counteract the immunosuppressive tumour microenvironment or have enhanced cell-killing properties. Targovax presented preclinical in vitro and in vivo data at the American Association for Cancer Research Virtual Annual Meeting in June 2020 from its studies with the ONCOS-210 and -212 viruses, demonstrating anti-cancer properties and that the double transgenes act synergistically. We expect more data soon, including more details about positioning in the clinic and which indications will be prioritised. In addition, the new collaboration with Leidos, as described above, could potentially lead to a new generation ONCOS virus.

Multiple R&D collaborations should contribute to newsflow

Targovax’s focus and investment areas are the ongoing lead clinical trials with ONCOS-102 and preclinical work on the new generation of oncolytic viruses. Over the past year, however, the company has established partnerships focused on early-stage exploratory projects involving ONCOS-102 and its mutant RAS targeting platform (collaborators in Exhibit 4). In these types of collaborations, Targovax typically provides access to its technology and support, but financial involvement is limited. Because the company still contributes its intellectual property, any potentially successful combination therapies would mean a licensing deal for Targovax. So this is a good way to enhance future profit opportunities in a cost-efficient manner. We have reviewed the extensive list of the R&D collaborations in our report published in September 2020.

Exhibit 4: Immune activation in mesothelioma trial corelates with clinical outcome

Source: Targovax

Financials and valuation

Targovax’s nine-month (9m) 2020 operating expenses were NOK81.7m, lower than NOK111.0m in 9m19 after the cost-reduction programme. We had already cut our spending forecasts to an operating loss and now fine-tune it by lowering the operating loss to NOK109.5m and NOK121.1m in 2020 and 2021 from NOK124.5m and NOK126.3m, respectively.

Targovax had cash and cash equivalents of NOK77.7m at the end of Q320 and carried out a private placement in October 2020, raising NOK75m gross. Targovax guided the total existing funding will provide a cash reach to Q122, which is in line with our model. Targovax issued 10.3m new shares (12% of the total outstanding after the issue) at NOK7.25 per share (16% discount to previous close).

Our updated valuation is NOK2.02bn or NOK23.3 per share versus NOK1.65bn or NOK21.6 per share previously. The main reason for the increase is the fact that we have revised our success probability in melanoma to 25% from 15%. Other changes include higher cash position and rolling the model forward, which was offset by dilution. We continue to exclude other long-term debt of €7m in Finnish government grants from our valuation, as repayment is only required if the products are sold or launched.

Exhibit 5: Sum-of-the-parts Targovax valuation

Product

Launch

Peak sales
($m)

Unrisked NPV (NOKm)

Unrisked NPV/share (NOK)

Probability (%)

rNPV
(NOKm)

rNPV/share (NOK)

ONCOS-102 – advanced melanoma

2025

590

3,093.4

35.8

25%

1,058.5

12.2

ONCOS-102 – mesothelioma

2026

424

2,448.8

28.3

25%

805.0

9.3

Net cash, last reported

152.7

1.8

100%

152.7

1.8

Valuation

5,694.9

65.8

2,016.2

23.3

Source: Edison Investment Research. Note: WACC: 12.5% for product valuations. Excludes conditional government long-term loans.

Exhibit 6: Financial summary

NOK000s

2018

2019

2020e

2021e

December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

27

2,251

0

0

Cost of Sales

0

0

0

0

Gross Profit

27

2,251

0

0

Research and development

(64,006)

(80,286)

(50,103)

(59,913)

EBITDA

 

 

(145,804)

(146,247)

(109,508)

(121,100)

Operating Profit (before amort. and except.)

 

 

(146,100)

(150,273)

(109,508)

(121,100)

Intangible Amortisation

0

0

0

0

Exceptionals

0

0

0

0

Other

0

0

0

0

Operating Profit

(146,100)

(150,273)

(109,508)

(121,100)

Net Interest

(1,249)

2,423

0

0

Profit Before Tax (norm)

 

 

(147,349)

(147,850)

(109,508)

(121,100)

Profit Before Tax (reported)

 

 

(147,349)

(147,850)

(109,508)

(121,100)

Tax

334

321

0

0

Profit After Tax (norm)

(147,015)

(147,529)

(109,508)

(121,100)

Profit After Tax (reported)

(147,015)

(147,529)

(109,508)

(121,100)

Average Number of Shares Outstanding (m)

52.6

60.8

74.8

86.3

EPS - normalised (NOK)

 

 

(2.79)

(2.43)

(1.46)

(1.40)

EPS - normalised fully diluted (NOK)

 

 

(2.79)

(2.43)

(1.46)

(1.40)

EPS - reported (NOK)

 

 

(2.79)

(2.43)

(1.46)

(1.40)

Dividend per share (NOK)

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

371,129

371,050

371,050

371,050

Intangible Assets

370,240

367,083

367,083

367,083

Tangible Assets

889

726

726

726

Investments

0

3,241

3,241

3,241

Current Assets

 

 

166,509

85,858

137,676

26,321

Stocks

0

0

0

0

Debtors

0

0

0

0

Cash

151,189

70,429

122,247

10,892

Other

15,320

15,429

15,429

15,429

Current Liabilities

 

 

(59,377)

(50,690)

(39,167)

(43,267)

Creditors

(50,250)

(53,931)

(42,408)

(46,508)

Short term borrowings

(9,127)

0

0

0

Long Term Liabilities

 

 

(103,565)

(109,263)

(109,263)

(109,263)

Long term borrowings

(43,933)

(50,441)

(50,441)

(50,441)

Other long term liabilities

(59,632)

(58,822)

(58,822)

(58,822)

Net Assets

 

 

374,696

296,955

360,295

244,841

CASH FLOW

Operating Cash Flow

 

 

(112,816)

(140,094)

(115,384)

(111,355)

Net Interest

1,249

(2,423)

0

0

Tax

0

0

0

0

Capex

0

(134)

0

0

Acquisitions/disposals

0

0

0

0

Financing

(30)

66,863

167,200

0

Other

(3,041)

(2,353)

2

0

Dividends

0

0

0

0

Net Cash Flow

(114,638)

(78,141)

51,818

(111,355)

Opening net debt/(cash)

 

 

(212,767)

(98,129)

(19,988)

(71,806)

HP finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

(98,129)

(19,988)

(71,806)

39,549

Source: Targovax accounts, Edison Investment Research


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General disclaimer and copyright

This report has been commissioned by Targovax and prepared and issued by Edison, in consideration of a fee payable by Targovax. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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